Outlook for Social Security Worsens
The outlook for Social Security worsened over the past year. According to the program’s trustees’ 2023 report, the main culprit for that change is the high inflation of the last two years. They expect that inflation will increase the cost of benefits and sap future economic growth.
Barron‘s Elizabeth O’Brien reports on what that will mean for those counting on receiving Social Security benefits:
Social Security’s retirement trust fund is projected to run dry in 2033, one year earlier than previously estimated, according to a report released Friday.
This acceleration comes after the program’s trustees lowered their expectations for gross domestic product and labor productivity in light of updated data on inflation and U.S. economic output, according to the annual Social Security and Medicare Trustees Reports....
The projected depletion of the trust funds’ reserves would occur if Congress doesn’t act before the depletion dates to pass legislation to shore up the programs. For Social Security, payroll taxes flowing into the trust fund would be able to cover 77% of scheduled benefits if the fund were depleted, according to the trustees’ projections....
For Social Security recipients, an income cut of about 23% would represent a hardship for all but the most affluent of the roughly 53 million retired workers receiving benefits.
Under current law, everyone who receives Social Security retirement benefits will see them cut after the program’s trust fund funding them at their current level is fully depleted in ten years.
The Trustees’ report describes how big the problem is. It identifies what lawmakers could do to prevent any cuts from happening:
The actuarial deficit for the combined trust funds under the intermediate assumptions is 3.61 percent of taxable payroll for the 75-year period through 2097, increased (worsened) from the 3.42 percent deficit for the 75-year period through 2096 in last year’s report. To illustrate the magnitude of the deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period ending with 2097: (1) revenue would have to be increased by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.44 percentage points to 15.84 percent; (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of 21.3 percent applied to all current and future beneficiaries through 2097, or 25.4 percent if the reductions were applied only to those who become initially eligible for benefits in 2023 or later; or (3) some combination of these approaches would have to be adopted.
President Biden released his 2024 budget proposal just a few weeks before Social Security’s Trustees issued their annual report. Since members of his cabinet participated in writing both official documents, you might expect his budget proposal would address Social Security’s worsening fiscal situation. You would be wrong, as ABC News‘ Alexandra Hutzler reports:
When President Joe Biden unveiled his $6.8 trillion budget proposal for fiscal year 2024 on Thursday, notably absent was a plan to shore up the finances of Social Security....
The problem for Biden, experts said, is that he’s vowed not to cut any benefits and to not increase taxes on those making under $400,000 per year—which will make it extremely difficult to balance the program’s finances long-term.
It’s the nation’s biggest predictable fiscal problem. Like the inflation that made Social Security’s problems worse, it’s a problem President Biden is choosing to let fester. Until, like inflation, it might become so bad he’s forced to face up to it.